Tech Mahindra slips post March quarter results; brokerages mixed on stock

Tech Mahindra slips post March quarter results; brokerages mixed on stock
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stock received a lukewarm response from the investors on Dalal Street following a mixed set of March quarter results. The IT major’s Q4 performance missed Street’s estimates on the revenue and profit after tax (PAT) front although margins and deal win surprised positively.


Following this, the stock was trading marginally lower by 1.5 per cent at Rs 948.65 on the BSE. It had touched a high of Rs 985.65 in opening trade.



announced a net profit of Rs 1,081 crore for the fourth quarter ended March 31, 2021, up 34.6 per cent year-on-year (YoY), but down sequentially by 17.4 per cent.


Revenue for the quarter was up 2.5 per cent YoY at Rs 9,730 crore but grew a mere 0.9 per cent compared to the preceding quarter ended December 31, 2020. In constant currency (CC) terms, it rose by 0.7 per cent quarter-on-quarter (QoQ) while the operating margins came in at 16.5 per cent, up 50 bps QoQ and 650 bps YoY.


The brokerages held mixed views on the stock post the March quarter performance, ranging from ‘Buy’ to ‘Sell’.


disappointed with a muted CC revenue growth while payout impressed with a dividend of Rs 45 per share for FY2021. Deal wins have improved with an equally strong pipeline, setting the company up for double-digit growth in FY2022. Hence, we maintain estimates,” said analysts at Kotak Institutional Equities (KIE).


The stock trades at inexpensive 14X FY2023E earnings with the potential for revenue acceleration on the back of the 5G opportunity, the brokerage added while maintaining a BUY rating on the stock with a target price of Rs 1,150, valuing the stock at 16.5X FY2023E EPS.


Rishit Parikh of Nomura also finds Tech Mahindra’s valuations reasonable at ~17x FY22F EPS and has a BUY call on the stock with a target of Rs 1,110.


Nomura guides for a ~9.5 per cent dollar revenue growth (below guidance) given it implies an aggressive ask rate of ~2.5 per cent CQGR over FY22F. Meanwhile, it pegs Ebit for FY22/23 at ~15 per cent/14.6 per cent. Parikh, however, flags the company’s inability to participate aggressively in the 5G opportunity or sustain EBIT margin levels as key downside risks to the stock.


Analysts at Phillip Capital, meanwhile, remained unimpressed with TechM’s performance. It maintained a SELL rating on the stock with a target price of Rs 800.


“We maintain Tech Mahindra is precariously managing margins by measures like deferring wage hike, peak utilisation, lower bench strength and headcount reduction – which are not sustainable in the medium to long term,” the brokerage said.


Phillip Capital has upgraded TechM’s FY22/23 EPS estimates (by 11 per cent/6 per cent), primarily on better revenue growth and margin guidance. The brokerage, however, added that it sees downside risk to its estimates, given TechM has rarely delivered growth and margins together.


Brokerage Motilal Oswal remains neutral on the stock. It has a target of Rs 1,050.


“As operations are running at elevated levels (higher utilization, lower employee expenses, etc.), we expect some normalization in EBIT margin from current levels. This should lead to the lowest PAT growth among its peer group. We largely keep our estimates unchanged post its 4QFY21 result. Our target implies 16x FY23E EPS,” it said.

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